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Interest Rates Held Unchanged

The Bank of England’s monetary policy committee (MPC) voted for the eighth consecutive month to keep interest rates unchanged at 4.5% during their April rate setting meeting. The reluctance to change rates is largely down to concerns over a rising housing market along with large increases in energy costs.

The MPC is playing a waiting game at the moment, keen to see what, if any, impact on the economy as a whole the rise in energy costs will have. If the higher utility costs have led to increased pay claims (and the beginning of any year is usually the period where workers re-negotiate their pay) then a cut may not be necessary.

House prices have had a strong influence on the interest rate decision, with the housing market continuing to see increases in the prices the MPC were loath to reduce interest rates as this could further inflate hose prices by driving more people into the market, as lower mortgage costs would mean make buying a house more affordable.

As well as a fear that the housing market needs to be kept in check, the Bank also has the target inflationary figure of two percent to meet – something that it has done, with annual inflation running exactly at that target rate.

There have been repeated calls from a number of industry leaders for a cut in interest rates in order to help the retail and manufacturing sectors, and one of the MPC board members, Stephen Nickell has been echoing those calls within the meetings without success. He is due to leave the MPC next month, which puts further doubt on any cut in rates coming any time soon as he was the only one of the members since the August rate cut that has continued to call for further cuts to be made.

The bank has forecast a growth rate of 2.7% for the coming year, however this is not widely accepted, with many analysts putting that figure at a far more conservative 2.2% or less – if this turns out to be correct then a reduction in interest rates will be needed within the next twelve months. Growth does appear as though it will continue to run on target for the first half of the year, leading many experts to suggest that a rate cut wont come any earlier than August, if of course we see one at all this year.